Chapter 7: Operating Assets Flashcards
the long-lived assets that are used by the company in the normal course of operations.
operating assets
Are operating assets sold to customers?
no ; they’re used by the company to generate revenue
The typical operating asset is used for a period of __ – ___ years.
4 - 10 years
What are the three categories of operating assets?
- Property, plant, and equipment (often called fixed or plant assets)
- Intangible assets
- Natural resources
operating assets that are tangible (can be seen and touched). They include, among other things, land, land improvements, buildings, and equipment.
property, plant and equipment (fixed assets)
operating assets that generally result from legal and contractual rights and do not have physical substance.
intangible assets
What are 5 examples of intangible assets?
- Patents
- Copyrights
- Trademarks
- Licenses
- Goodwill
naturally occurring materials that have economic value. They include timberlands and deposits such as coal, oil, and gravel.
natural resources
At acquisition, an operating asset is recorded at its cost, including the cost of _______ the asset and the cost of _________ the asset for use (historical cost principle).
acquiring; preparing
Operating assets are capitalized, which means what?
they’re reported as long-term assets with a service potential of greater than 1 year.
As the service potential of an operating asset declines, the cost of the asset is allocated as an _______ among the accounting periods in which the asset is used and benefits are received.
expense
Name the type of allocation of the cost of the asset for each type of operating asset:
1. PPE
2. Intangible Assets
3. Natural Resources
- Depreciation
- Amortization
- Depletion
T or F: operating assets are often the most costly type of asset acquired by an entity.
True
Information about a company’s operating assets gives financial statement users insight into what two things?
- A company’s ability to satisfy customer demands
- Effectiveness of management in using the company’s assets to generate revenue
What are 4 examples of property, plant, and equipment?
- Land
- Land Improvements (like driveways, parking lots, fences, lighting, etc.)
- Buildings
- Equipment
What has an unlimited life and service potential, and is not subject to depreciation?
Land
T or F: Land improvements, buildings and equipment have limited lives and service potential and are depreciated over the periods in which they’re used to generate revenue.
True
Expenditures that are included as part of the cost of the asset are said to be _________.
capitalized
For land improvement, cost usually includes what three things?
- Purchase price
- Sales taxes
- Installation costs
For land, cost usually includes what 6 things?
- Purchase price
- Real estate commissions
- Delinquent property taxes
- Closing costs
- Clearing and grading costs
- Demolition of unwanted buildings, minus any salvage
For buildings, cost usually includes what 6 things?
- Purchase price
- Closing costs
- Architectural fees
- Cost of building permits
- Excavation costs
- Remodeling fees
For equipment, cost usually includes what 6 things?
- Purchase price
- Sales taxes
- Transportation costs
- Insurance during transportation
- Installation costs
- Cost of trial runs
Generally, recurring costs that benefit a period of time, not the asset’s life, are (capitalized/expensed) instead of (capitalized/expensed).
expensed; capitalized
T or F: Unnecessary costs that don’t increase an asset’s usefulness (ex: vandalism, damage during installation) are capitalized.
False; they are expensed